The management of Advanced Alternative Power Inc. is considering two capital investment projects. The estimated net cash flows from each project are as follows: Year Wind Turbines Biofuel Equipment $250,000 $530,000 250,000 530,000 250,000 530,000 4. 250,000 530,000 Present Value of an Annuity of $1 at Compound Interest 1.

The management of Advanced Alternative Power Inc. is considering two capital investment projects. The estimated net cash flows from each project are as follows: Year Wind Turbines Biofuel Equipment $250,000 $530,000 250,000 530,000 250,000 530,000 4. 250,000 530,000 Present Value of an Annuity of $1 at Compound Interest 1.

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Question

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The management of Advanced Alternative Power Inc. is considering two capital investment projects. The estimated net cash flows from each project are as follows:
Year
Wind Turbines
Biofuel Equipment
$250,000
$530,000
250,000
530,000
250,000
530,000
4.
250,000
530,000
Present Value of an Annuity of $1 at Compound Interest
1.

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The management of FICSIT Inc. is considering two capital investment projects. The estimated net cash flows from each project are as follows:YearWind TurbinesBiofuel Equipment1$270,000$300,5002270,000300,5003270,000300,5004270,000300,500The wind turbines require an investment of $877,600, while the biofuel equipment requires an investment of $910,000. No residual value is expected from either project.Problem 2 Instructions a. Determine the internal rate of return for each project by:i. computing a present value factor for an annuity of $1 and ii. using the present value of an annuity of $1 table appearing in this chapter (Exhibit 5).
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Given the following, calculate the project's cash flows, NPV, and IRR. Initial investment $325,000 Expected life is 5 years First Year Revenues: 145,000 First-Year Expenses: $65,000 • Growth for revenue and expenses: 4.5 percent per year Straight Line Depreciation over 5 years Salvage Value: $50,000 One-time net working capital investment of $10,000 is required at the start of the project and will be recovered at project end The tax rate is 34 percent The risk-free rate is 4 percent Beta is 1.1 • The expected market return is 8 percent Answer the following: ● ● ● ● ● ● ● ● ● What are the cash flows for each year? What is the NPV? What is the IRR?
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Giant Machinery Ltd is considering to invest in one of the two following Projects to buy a new equipment. Each project will last 5 years and have no salvage value at the end. The company’s required rate of return for all investment projects is 9%. The cash flows of the projects are provided below. Project 1 Project 2Cost $175,000 $185,000Future Cash FlowsYear 1 76,000 83,000Year 2 67,000 65,000Year 3 55,000 87,000Year 4 78,000 69,000Year 5 65,000 57,000Required:a) Identify which project should the company accept based on NPV method. (Note: Please round up the result of each calculation of PV to 2…
The management of Wyoming Corporation is considering the purchase of a new machine costing $375,000. The company's desired rate of return is 6%. The present value factor for an annuity of $1 at interest of 6% for 5 years is 4.212. In addition to the foregoing information, use the following data in determining the acceptability of this investment: Operating Net Cash Year Income Flow 1 $18,750 $93,750 2 18,750 93,750 3 18,750 93,750 4 18,750 93,750 5 18,750 93,750 The cash payback period for this investment a. 4 years Xb. 3 years c. 5 years d. 20 years
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